1

Tennessee Honey and Top-Shelf Bourbon Deliver a Win for Brown-Forman

Outstanding growth in Jack Daniel's Tennessee Honey flavored whiskey helped deliver Brown-Forman (NYSE: BF-B) an impressive quarterly earnings report, with overall distillery sales up 7% in the past nine months, as compared to the nine-month figure from a year ago. Even better, sales were up 8% in the most recent quarter, and profits rose by 12%. Investors liked what they saw on Wednesday, and shares ticked up nearly 3.5% on the day.

Let's take a look at a few of the highlights from the third-quarter 2014 call.

Honey's been sweet to the Jack Daniel's familyTennessee Honey was the star of the show during earnings. The company said sales of the only flavored whiskey that bears the Jack Daniel's name were up 20%, twice that of the Jack Daniel's family of whiskeys overall. The growth was important, especially considering how crowded the flavored whiskey market has fast become -- 50 new flavored whiskey products debuted in the U.S. in the first half of 2013 alone.

Tennessee Honey competes directly against Beam's (NYSE: BEAM) Jim Beam Honey and its popular line of Red Stag infused bourbons, all of which sell at a cheaper price. Beam has been out in front of Brown-Forman on the flavored whiskey front.

Source: Jack Daniel's

Tennessee Honey is a product of what Brown-Forman executives refer to as "disciplined innovation." Unlike beer brewers, who can turn around an experimental batch of beer in a couple months at a pretty cheap cost, a whiskey distillery has to be very careful about its experimentation. Most whiskeys are aged several years -- concept to finished product can take a long time.

What's more, tinkering with such an iconic label might not be well-received. So, Brown-Forman wanted to make sure its first departure into flavored Tennessee whiskey was one worthy of the Jack Daniel's name. So far, drinkers have given Honey a thumb's up.

Management says Tennessee Honey continues to attract new drinkers to Jack Daniel's, and at the same time, its sales do not seem to be cannibalizing sales of J.D. to any significant degree. Promising signs for the Louisville-based distiller.

Drinkers continue to step up in classBrown-Forman's top-shelf Woodford Reserve grew sales by 27% year-to-date, the company reported. Management said they continue to see "strong interest in super and ultra-premium whiskey brands. Woodford posted 28% growth in fiscal 2013, so it remains on track to just about match that this year.

The company's long-term goal is to sell a million cases of Woodford Reserve annually. In 2013, it sold about 250,000. Last year, Brown-Forman announced it would invest $35 million in an expansion of the Woodford distillery, the oldest working distillery in the U.S., in order to keep up with growing demand.

Like Tennessee Honey, much of Woodford's competition comes from Beam, which distills several of its own fast-growing top-shelf bourbons, including Maker's Mark, Knob Creek, and Basil Hayden's, whose sales were up 17%, 15%, and 34%, respectively, over the nine months that ended last September.

The growing global taste for American whiskeyInternational sales of Brown-Forman spirits were strong, driven by what management called a global demand for "authentic" American whiskey brands. Brown-Forman generates only about 20% of its sales from emerging markets -- about half of the percentage that its key competitors Beam and Diageo take in in non-U.S. sales.

Source: Foodbeast.com

Brown-Forman sees this as a distinct advantage. Just as American whiskey is starting to take off internationally, the company appears to have the longest runway for growth. And it just so happens to have the most iconic brand of U.S. whiskey.

The Foolish bottom lineBrown-Forman delivered a solid quarter, with bright spots in sales of its Jack Daniel's Tennessee Honey flavored whiskey and continued strength in its top-shelf Woodford Reserve bourbon. These are certainly competitive markets, and ones in which a soon-to-be sold Beam offers some of the biggest competition. Continued growth of Woodford after a planned distillery expansion is key moving forward, as its the company's plan to continue taking share internationally. With relatively smaller exposure outside the U.S. and a famous American label, it's well-positioned to succeed on that front.

Looking for an investment that can deliver huge returns?The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have done it before with the likes of Amazon and Netflix. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Sending report...

Fool contributor John-Erik Koslosky has been picking his own stocks since the market crashed in 2008. He aims for a mix of value and growth, but mostly, just looks to buy great businesses.
Follow @JE_Koslosky